The Analysis Of Differences Between VC-Backed And Non VC-Backed Companies In The Degree Of Underpricing In Initial Public Offerings

Underpricing in Initial Public Offering means that as the issuing price be set so low, the closing price in the first trading day become so high, thus caused short-term extra rewards. As research work shown, this phenomenon is universal, except for the difference in the degree of underpricing, the degree of underpdcing is less in mature stock markets than in emerging stock markets.One type of listed companies has been hot issue in recent overseas research work as they have VC-backed background. Compared with non VC-backed companies, VC-backed companies have four participants in IPO: issuer, underwriter, investor and VC. The participation of VC has caused more complexity in all parties. From the point of view of issuer, VC is a shareholder, which has great influence before IPO, from the point of underwriter, VC is a financial institution while for investor VC act as a institutional investor. We can compare the differences between VC-backed and non VC-backed companies in the degree of underpdcing in IPO, so as to certify the effects of VC in the process of IPO.In abroad those research has been very popular, and the results lie in two aspects: one is that compared with non VC-backed companies, VC-backed companies have lower underpricing, and the other is vice versa. The well-accepted theories include the certification model, the adverse selection theory and the grandstanding hypothesis.In our country, the industry of VC is still in progress, the research work concerning this aspect is mainly based on the introduction of those theories from abroad and is lack of the support of demonstration research. Considered the acquirability of data, based on the models from abroad and the conditions of stock markets and VC industry of our country, in this paper we tried to use the differential theory of comparison to verify the effects of VC in the process of IPO, thus reflects the performance of VC industry, which is the feature and innovation of this paper.In this paper, we analyzed 22 VC-backed companies and 22 matched non VC-backed companies which listed in Shanghai stock market during January 1, 2001 to December 31, 2004, by using the method of differential comparison and multi-regression analysis, we verified the applicability of the certification model, the adverse selection theory and the grandstanding hypothesis in our country. The results show that the degree of underpdcing in IPO has no relativity with VC background, the above theories don't exist in our country, the differences between VC-backed and non VC-backed companies in the degree of underpricing in IPO are caused by different reactions from investors in trading market. Finally, based on the comparison in the differences between native VC and foreign VC in the source of capital, the structure of organization and the mode of administration, we give some advice on the development of the VC industry.